WALK THROUGH GST AUDIT Organised by - WIRC of ICAI 4th May 2019 - - PowerPoint PPT Presentation
WALK THROUGH GST AUDIT Organised by - WIRC of ICAI 4th May 2019 - CA Pranav Kapadia 1 Original GST Compliance Landscape GSTR 1 GSTR 2A GSTR 2 GSTR 3 GSTR 1A Audit Report GSTR 9 Form GSTR 9C Books of Account 2 Current GST
GSTR 1 GSTR 2A GSTR 2 GSTR 3 GSTR 1A GSTR 9 Audit Report Form GSTR 9C Books
Account
GSTR 3B GSTR 2A GSTR 1 GSTR 9 Audit Report GSTR 9C Books of Account
GSTR 9 – Annual Return - Registered Persons (Other than those opting for Composition) GSTR 9A – Annual Return - Registered Persons opting for Composition GSTR 9B – Annual Statement - E-commerce operators required to collect tax at source. GSTR 9C – Reconciliation Statement - Registered Persons whose Aggregate Annual Turnover exceeds Rs. 2 crores
Overview Applicability of GST Audit GST Audit Report Format (Form 9C) Consequences for Late Filing Challenges Approach to Audit Readiness
Examination of records, returns and other documents maintained or furnished by the registered person under this Act or Rules made thereunder or under any
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Verify the correctness of turnover declared.
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Taxes paid,
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refund claimed
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and input tax credit availed.
Reconciliation statement u/s 35(5)
Accountant or Cost Accountant Audit by Tax Authorities u/s 65(1)
any officer authorized by him Special Audit u/s 66(1)
in specific matters through Chartered Accountant or Cost Accountant
turnover during a FY exceeds Rs. 2 crore.- Rule 80(3) To whom it applies?
to 30th June,2019- Press Release dated 22- 12-18 What is to be filed?
Section 44(1) “Every registered person other than Input service distributor, a person paying tax under section 51 or section 52,a casual taxable person and a non-resident taxable person, shall furnish an annual return for every financial year electronically in such form and manner as may be prescribed on or before the thirty-first day of December following the end
Section 44(2)”Every registered person who is required to get his accounts audited in accordance with the provisions of sub-section (5)
section (1) along with a copy of the audited annual accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year with the audited annual financial statement, and such other particulars as may be prescribed”. “Explanation.- For the purposes of this section, it is hereby declared that the annual return for the period from the 1st July, 2017 to the 31st March, 2018 shall be furnished on or before the 31st March, 2019
“Aggregate turnover” as defined in section 2(6) of CGST Act, 2017 “means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter- state supplies of persons having same PAN, to be computed on all India basis but excludes CGST/SGST/UT/IGST & cess”. Rule 80(3) - Every registered person whose aggregate turnover during a financial year exceeds two crore rupees shall get his accounts audited as specified under sub-section (5) of section 35 and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C, electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner.
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Turnover – Not defined in the Act
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Aggregate Turnover - Section 2(6)- PAN India Turnover
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Turnover in State- Section 2(112)- Turnover within the State
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Rule 80(3) mentions ‘Aggregate Turnover’
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Whether turnover is to be considered PAN India or state wise GSTIN?
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Two GSTIN in same state. Whether two Audit Reports required?
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Whether separate Audit for ISD / CTP /NRTP GSTIN required?
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Whether turnover of April 2017 to June 2017 to be considered for 2 Cr limit?
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For the financial year 2017-18, the GST period comprises of 9 months whereas the relevant section 35(5) uses the expression financial year;
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Therefore, in the absence of clarification from government, also to avoid any cases of default, it is reasonable to understand that to reckon the turnover limits prescribed for audit i.e., Rs. 2 crores one has to reckon the turnovers for the whole of the financial year which would also include the first quarter of the financial year 2017-18
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Stock transfers/ cross charges/ services provided from a branch located in
aggregate turnover of the branch supplying the goods/ services
Turnover of ABC Ltd is Rs.100 crores. As per the State PL of Maharashtra, the turnover of Maharashtra is Rs. 40 crores
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Whether the auditor should insist on audited/certified State PL from Statutory Auditor for the 9 months period or MRL will suffice?
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What is the responsibility of the auditor to ensure that the balance Rs. 60 crores is reported in other States?
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What would happen if through genuine error, a turnover of Rs. 1 crore attributable to Maharashtra is wrongly reported in some other State?
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It is possible that different Auditors are appointed for certifying GSTR 9C for different registrations of the entity. As multiple Auditors are involved in certifying of the GSTR 9C, the Registered Person and every Auditor must ensure that the turnovers’ declared by different Auditors must reconcile and add-up to the total turnover of the entity as per the audited financial
Auditors”, an Auditor must communicate with the other Auditors to obtain details of turnover declared by him to ensure that the various turnovers declared by them.
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Alternatively, a suitable management representation may be obtained from the entity that such turnovers declared by different Registered Persons aggregate to the audited financial statements. Such an exercise would also be required where multiple registrations are obtained within the same State / UT for different business verticals.
When does the system enable filing of Form GSTR 9C?
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GSTR-9C tile shall be enabled only after successful filing of GSTR-9 for the financial year.
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Form GSTR-9C shall be made available to all taxpayers to whom GSTR-9 is applicable for the financial year.
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System shall not validate whether the turnover of taxpayer exceeds 2 crore rupees or not.
Will there be any system computed fields and data auto-populated in Form GSTR 9C?
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Taxpayer can download the ‘System generated summary based on GSTR-9’ in PDF file from the portal by clicking on ‘Download GSTR-9C tables derived from GSTR-9(PDF)’ button.
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Downloaded PDF can be handed over/passed on to auditor. Auditor can use the same to fill the GSTR-9 related fields in GSTR-9C.
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System generated summary based on GSTR-9’ filed shall have the following fields:
Is there any limit on the size of documents required to be uploaded?
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Limit of upload for following documents under each section shall be 2 files and each file size should not exceed 5 MB:
Part I: Basic Details Part II: Reconciliation of turnover of outward supplies in audited financial statement vis-à-vis Annual Return Part III: Reconciliation of tax paid Part IV: Reconciliation of Input Tax Credit Part V: Auditor’s recommendation of additional liability due to non reconciliation
Format I - Certification in cases where the reconciliation statement is drawn up by the person who had conducted the audit Format II - Certification in cases where the reconciliation statement is drawn up by a person other than the person who had conducted the audit of accounts.
Format I Format II
Flow
& annexures
documents required under the GST Law
records and documents required under the GST Law 3(a) Report
3(b) Report that A. Obtained all information necessary B. Proper Books of Accounts are maintained
attached
to observations
correct subject to observations
Format I Form 3CB
Flow
and documents required under the GST Law
books 3(a) Report
3(a) Report
s 3(b) Report that A. Obtained all information necessary B. Proper Books of Accounts are maintained
3(b) Report that A. Obtained all information necessary B. Proper Books of Accounts are maintained
to observations
and correct subject to observations
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MVAT Audit – Form 704 Part 1 - Point 2(B) – also was a certification
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Subject to my/our remarks about non compliance , shortcomings and deficiencies in the returns filed and tax liability computed and presented in respective schedules and para 4 of this part , I/we certify that
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Clause a to clause p
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Pvt ltd. Co. having different Statutory Auditor , Tax Auditor and GST Auditor
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Partnership Firm having Different Tax Auditor and GST Auditor
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Partnership Firm – Builder- AS-7- – Turnover as per Books – 1.5 cr – Turnover under GST 2.5 cr – Format 1 will apply
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Company having Branches in Other States. Consolidated Balance Sheet & P& L Account are prepared. - No separate Balance Sheet & P& L of the Branches -
Entity
Tax Auditor GST Audit XYZ LTD. ABC & Co. PQR & co. LMN & Co. GHI (Partnership)
LMN & Co.
Remarks Whether turnover as per audited financial statements will include the following?
P&L)
as profit in P&L) ICAI Technical Guide- pg 279 While considering the turnover from the audited financial statements, the Auditor is also required to include indirect income in the form of dividend, interest, forex fluctuation, profit on sale of asset etc. Any amount of return supplies credited to purchase or expenditure account would not be considered for the purpose of arriving at the turnover under Sl. No. 5A. Such adjustment has been separately dealt with under appropriate Sl.
Sr. Particulars Remarks 5B 5H Unbilled revenue at beginning/end of financial year Unbilled Revenue recorded in last FY and c/f to current year shall be added and vice-versa Issue – Unbilled revenue to be considered as at beginning of FY or 1 July 2017 ? Unbilled revenue as on 31st March 2017 100 Invoiced before 30th June 2017 50 Invoiced between 1st July 2017 to 31st March 2018 30 Invoiced after 1st April 2018 20 Option 1 Option 2
100 50
30 30
Sr. Particulars Remarks ICAI Technical Guide –pg.283 Unbilled revenue would appear in the profit and loss account of the previous year. In
reference may be had to previous year’s audited financial statements. However, as GST was introduced from 1st July 2017 one needs to be careful to exclude invoices raised during the period April 2017 to June 2017 from the computation. The expression ‘financial year’ for 2017-18 has already been explained above to be 9 months period commencing 1 July, 2017, the value under this clause must be reckoned as at 30th June, 2017 (5B Instructions : For example, if Rs.10 Crores of unbilled revenue existed for the financial year 2016-17, and during the current financial year, GST was paid on Rs. 4 Crores of such revenue, then value of Rs. 4 Crores rupees shall be declared)
Sr. Particulars Remarks 5B 5H Unbilled revenue at beginning/end of financial year Unbilled Revenue recorded in last FY and c/f to current year shall be added and vice-versa
Issue
An amount of Rs.10,00,000/- was recorded and reported as “Unbilled Revenue” by the Statutory Auditor as on 31.03.2018 but as per Time of Supply provisions under GST, invoice should have been raised prior to 31.03.2018. To what extent the GST Auditor should examine the provisions of ToS? Or should he simply rely on Statutory Auditors judgment?
ICAI Technical Guide -pg285 - Disclosure
Reliance has been placed on the audited financial statements for determining the unbilled revenue and no separate exercise is conducted to validate the same.
Remarks Advances on which GST is paid but the same has not been recognized as revenue shall be added to the turnover and vice-versa. Issue Interpretation of Deposits vs. Advances – whether required or rely upon Statutory Auditors judgment? Advances for Goods , whether disclosure required? Advances for Services, tax not discharged, whether disclosure required? ICAI Technical Guide In case of advance for goods, auditor has to examine whether auditee has discharged tax on advances till 15.11.2017. Advances even if not considered in GSTR 1 and 9 shall be added to turnover here. Advances in the nature of financial transactions (deposits/loans) to be identified and ignored
Remarks Includes free supplies to related parties. Issue Common Employee cost, Branch Transfer not done by the assessee. Whether Auditor should provide his interpretation and disclose the value in reconciliation with addition in liability or should rely upon assessee’s judgment? 5D Instructions - Any deemed supply which is already part of the turnover in the audited Annual Financial Statement is not required to be included here. ICAI Technical Guide
verification process and obtain MRL for correctness and completeness of the same
information for reporting
Sr. Remarks 5E Aggregate value of credit notes which were issued after 31st of March for any supply accounted in the current financial year but such credit notes were reflected in the annual return (GSTR-9) shall be declared here 5F Trade discounts recorded in books of accounts but on which GST was leviable i.e. not permissible. 5J Aggregate value of credit notes which has been accounted for in the audited financial statement but not admissible under section 34 of CGST Act shall be deducted.
Remarks The Turnovers declared in Excise, VAT and Service Tax returns should match with this, subject to POT differences Issue The assessee being a service provider had obtained centralized registration in the Service Tax regime. It is difficult to provide state-wise turnover details of the pre-GST regime (April 2017 to June 2017). How to disclose pre-GST turnover in such cases? Will this clause include invoices/CNs of the erstwhile law but issued in post GST regime bearing pre-GST references?
Sr. Remarks 5K Aggregate value of all goods supplied by SEZs to DTA units for which DTA units have filed bill of entry shall be deducted. 5L Applicable in case registered person has opted out from composition scheme 5M Incase taxable value and invoice value differ due to valuation principles.
ICAI Technical Guide
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Auditor must obtain and verify vendor contracts
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List of related parties and details of transactions with such related parties should be verified
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Difference between the valuation as per financial records and GST records has to be reported
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RCM implications on recovery of expenses to be verified
Sr. Particulars Remarks 5O Comments:-
Sr. Remarks 5P Auto sum 5Q Turnover as declared in Annual Return may be derived from 5N, 10 and 11, 5N is the total turnover including advances,10 & 11 are the supplies declared through amendments. 5R Need to specify reasons for unreconciled Turnover. Eg– Additional Tax liability or overpaid taxes
Sr. Remarks 7B 7C and 7D Should be reported net of credit notes, debit notes and amendments 7F As per Table (4N – 4G) + (10-11) of GSTR-9 Outward Supplies and Advances received on which tax is to be paid
Remarks Issue
exempt section of GSTR 1. The same was not disclosed and not forming part of GSTR 9 as well. Now in GSTR 9C, assuming Clause 5A is only topline number, should this interest income then be added in clause 5O and reduced from clause 7B?
transactions can it include? (Clause 7B)
therefore, not a part of GSTR 9 as well. Difference to be reported in Table 6 & 8 both? (Clause 7)
Remarks Issue
(Clause 7C)
supply reported as Zero-rated supply in GSTR 1 & 9. Should auditor make any comment in GSTR 9C? (Clause 7) ICAI Technical Guide
Reconciliation of rate wise liability and amount payable thereon Instruction 9Q – Total Amount Paid as declared in Annual Return – The amount payable as declared in Table 9 of the Annual Return (GSTR9) shall be declared here. It should also contain any differential tax paid on Table 10 or 11 of the Annual Return (GSTR9 ICAI Technical Guide
rate wise
RCM has been booked in accounts in compliance with Time of Supply. The Auditor could rely on reports or workings of the dates on which entries of inward supplies are made in the books of accounts for determining tax liability under RCM. Otherwise, Auditor should report that it was not possible to identify Time of Supply.
books should be prepared and kept as part of working papers by the Auditor so as to deduce the rate wise GST Liability under RCM.
Reconciliation of rate wise liability and amount payable thereon Issues :
CGST & SGST is reported instead of IGST in GSTR-1 (was taking originally) and not amended, similarly IGST supply tax paid as CGST/SGST. Whether this requires reporting? (Table 9)
vouch for rate of taxes for all the goods & services? (Table 9) ICAI Technical Guide
upon each and every classification of outward and inward supplies
between the assessee and Auditor
assessee and Auditor is due to error but not a conscious interpretation
Sr. Particulars Remarks 12A 12B 12C ITC Availed after reversals ITC includes Transitional Credit. ITC booked in the audited annual financial statement of current F.Y but availed in the ITC Ledger of the subsequent financial year shall be reduced. 12E ITC as per Table 7J of GSTR-9 . Net ITC available for utilisation
Sr. Description Value Total ITC Eligible ITC availed Purchases (+) Freight / Carriage (+) Power & Fuel (+) Capital Goods (+) Any other expense* Total amount of Eligible ITC Availed (A) ITC claimed in Annual Return (B) Unreconciled ITC (B-A) – ITC-2 Tax Payable on unreconciled ITC with Reasons
* Imported Goods, Rent and Insurance, Goods lost, stolen or destroyed, Royalties, Employees cost, Conveyance charges, Bank charges, Entertainment charges, Stationery Expenses, Repair & Maintenance, Other Misc. Exp. Etc......
Issues
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Is Table 14 is a sub-set of Table 12 ?
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Whether it requires reconciliation with PL? (Tables 12 & 14)
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Whether reconciliation with GSTR 2A is expected from an Auditor?
Part V consists of the auditor‘s recommendation on the additional liability to be discharged by the taxpayer due to non-reconciliation of turnover or non- reconciliation of input tax credit. The auditor shall also recommend if there is any other amount to be paid for supplies not included in the Annual Return. Any refund which has been erroneously taken and shall be paid back to the Government shall also be declared in this table. Any other outstanding demands which is recommended to be settled by the auditor shall be declared in this Table. ICAI Technical Guide
required is “absolute” and not “reasonable”.
zero.
every other aspect to which attention of revenue authorities needs to be drawn to, would be required.
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Verification by Auditor : I hereby solemnly affirm and declare that the information given herein above is true and correct to the best of my knowledge and belief and nothing has been concealed there from.
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Verification by Registered Person : I hereby solemnly affirm and declare that I am uploading the reconciliation statement in FORM GSTR-9C prepared and duly signed by the Auditor and nothing has been tampered or altered by me in the statement. I am also uploading other statements, as applicable, including financial statement, profit and loss account and balance sheet etc.
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Towards the end of the return, taxpayers shall be given an option to pay any additional liability declared in Form 9C, through FORM DRC-03.
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Such liability shall be paid through electronic cash ledger only.
Delay in filing Annual Return
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Penalty u/s 47(2) of CGST Act, 2017 of Rs. 200 per day (Rs.100 CGST + Rs.100 SGST)
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Maximum of 0.25% of the turnover in the state/Union Territory. (SGST+CGST)
Not getting accounts Audited
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No specific penalty provided for delay in filing GST Audit Report
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General penalty u/s 125 of CGST Act, 2017 up to Rs. 25000. Delay in filing GST Audit Report or Annual Return may also affect GST Compliance Rating of the Dealer
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Proper review of accounts and records.
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Proper and timely compliances
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Early detection of unpaid or short paid tax liability
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Early Detection of un-availed Input Tax Credit
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Timely claim of exemption
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Timely claim of benefits such as Refunds, etc.
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Periodic reconciliation of financial statements and GST returns
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Avoiding / Minimizing penalties, late fees, interest and other penal consequences
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Timely corrective actions such as correct recovery of tax from customers.
Lack of clarity in law, it is still evolving Understanding the business
Separate audits for distinct registrations Duplication of invoices. Errors in transitional credit claims due to mismatch in GSTN. Maintenance and review of records. Transactions not appearing in the financial accounts Discrepancy with the amount of credit / cash being utilized to
ITC would lapse if it is not availed till due date of filing return for Mar.’19.(unless date is extended) Whereas the Annual Return can be furnished by 30th June’19
Conversant with various software’s for GST Audit. DSC issues IT Infrastructure Untraceable errors are bound to be committed while filing the returns
l Understand the nature and complexity of business / operations, current Processes, Software's, IT Infrastructure of the auditee. l Collection of data such as registration details, list of accounts and records maintained, details of authorized signatories / persons in charge. l Analyzing and understanding the contracts, ITC mechanism, blocked credits, transition issues, supplies etc. l Check the transaction not appearing in financial statement.
l Proper estimation of the timelines for Commencement and closure. l Create an entity-level checklist with a view to ensure that all the transactions are adequately covered in the process of conduct of an audit l Discrepancies found shall be corrected / rectified by declaring the correct turnovers in the Annual Returns. l Standard Auditing Practices are adopted, proper disclosures are made, views / opinions are either noted or expressed
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It is vital to know that auditee maintains all the relevant documents and information that is required to be provided.
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Reconciliation between books and returns needs to be completed.
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Whether system is updated with all the details such as payment date, correct GSTIN of vendors is captured in the system.
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Where a registered person has more than one place of business, the accounts relating to each place of business shall be kept at such places of business.
E-Mail : pranav@apmh.in
Mob : +91 9821332460
Web : www.apmh.in